Preliminary Business Results of Insurers in Korea for the First Half of 2024

The total premium income of all insurers for the first half of 2024 (22 life insurers and 31 non-life insurers) amounted to KRW 115.7 trillion, an increase of KRW 4.4 trillion (+3.9%) compared to the same period of 2023.

Life insurers' premium income for the first half of 2024 reached KRW 54.5 trillion, an increase of KRW 1.8 trillion (+3.5%) year-on-year. This growth was driven by higher sales of protection-type insurance (+13.2%) and savings-type insurance (+0.7%), which offset declines in premium income from variable life insurance (-2.2%) and retirement annuities (-16.2%).

Non-life insurers recorded total direct premiums of KRW 61.3 trillion in the first half of 2024, an increase of KRW 2.6 trillion (+4.3%) compared to the same period of the previous year. This growth was primarily fueled by increased sales in long-term insurance (+5.2%), general P&C (+8.7%), and retirement annuities (+3.9%), despite a decline in premium income from motor insurance (-1.2%).

*Based on direct premiums (Source: Financial Supervisory Service, Sep. 3, 2024)

In the first half of 2024, the net income of all insurers totaled KRW 9.4 trillion, an increase of KRW 253.6 billion (+2.8%) compared to the same period of the previous year. However, life insurers recorded a net income of KRW 3.6 trillion, down by KRW 374.1 billion (-9.4%) year on year. This decline was due to a deterioration in investment income caused by reduced valuation gains on financial assets, despite improvements in underwriting profit driven by increased insurance product sales. Meanwhile, non-life insurers reported a net income of KRW 5.8 trillion, an increase of KRW 627.7 billion (+12.2%) compared to the same period of the previous year. This growth was attributed to an increase in insurance profit, driven by increased insurance product sales and a reduction in the liability for incurred claims (LIC), despite a decline in investment income due to lower valuation gains on financial assets. The reduction in LIC resulted from amendments to the enforcement rules in December 2023, which clarified the calculation standards for technical reserves (loss development factors).

(Source: Financial Supervisory Service, Sep. 3, 2024)

In the first half of 2024, the return on assets (ROA) stood at 1.52%, a decrease of 0.04%p compared to the same period last year. However, the return on equity (ROE) rose by 0.72%p year-on-year, reaching 11.79%.

(Source: Financial Supervisory Service, Sep. 3, 2024)

As of the first half of 2024, the total assets of insurers increased by KRW 16.2 trillion (+1.3%) to reach KRW 1,240.8 trillion, while total liabilities rose by KRW 31.5 trillion (+3.0%) to KRW 1,089.6 trillion, compared to the end of December 2023. In contrast, shareholders' equity amounted to KRW 151.2 trillion, representing a decrease of KRW 15.3 trillion (-9.2%) compared to the end of December 2023. This decline was driven by a larger increase in total liabilities relative to total assets.

(Source: Financial Supervisory Service, Sep. 3, 2024)

In summary, despite a decline in investment income driven by reduced valuation gains on financial assets, the net income of insurers in the first half of 2024 increased year on year, supported by growth in premium income. Given the heightened uncertainties in both Korea's financial markets and the global financial landscape, as well as potential losses stemming from real estate project financing (PF) in Korea and overseas commercial real estate, insurers must prioritize the stable management of their financial soundness. In response, financial supervisory authorities in Korea are expected to strengthen ongoing monitoring efforts, including comprehensive analyses of risk factors impacting insurers' financial stability.

K-ICS Ratios of the Korean Insurance Industry as of June 2024

As of the end of June 2024, the solvency ratio (K-ICS) for all insurers, after applying transitional measures, stood at 217.3%, down 6.3%p from 223.6% in the previous quarter. The solvency ratio for life insurers fell by 10.3%p to 212.6%, while for non-life insurers, it declined by 0.8%p to 223.9% quarter on quarter.

*The 2024 ratios refer to K-ICS ratios after the application of transitional measures. (Source: Financial Supervisory Service, Press Release on Oct. 17, 2024)

The primary reason for the decline in the solvency ratio was a decrease in available capital (-KRW 1.8 trillion) due to the impact of falling market interest rates, combined with an increase in required capital (+KRW 2.6 trillion).

As of the end of June 2024, the K-ICS available capital after applying transitional measures stood at KRW 260.4 trillion, a decrease of KRW 1.8 trillion compared to the previous quarter. This was due to an increase in net income for the second quarter of 2024 (+KRW 4.5 trillion) and adjustment reserves¹⁾ (+KRW 4.4 trillion), which was offset by a decrease in accumulated other comprehensive income (-KRW 11.9 trillion) resulting from an increase in insurance liabilities due to declining market interest rates. This trend was evident in the 10-year Korean Treasury bond yield, which declined from 3.41% at the end of March 2024 to 3.27% at the end of June 2024 (-0.14%p).

As of the end of June 2024, the K-ICS required capital, after applying transitional measures, rose by KRW 2.6 trillion from the previous quarter, reaching KRW 119.8 trillion. This increase was largely attributed to a KRW 1.3 trillion growth in life and long-term insurance risks, driven by the expansion of health insurance sales, which heightened exposure to disability and illness risks. Additionally, market risks grew by KRW 1.5 trillion, reflecting the heightened interest rate risk stemming from declining market interest rates.

(Source: Financial Supervisory Service, Insurance Companies' Capital Adequacy Ratios under K-ICS, June 2024, Press Release dated Oct. 17, 2024)

As of the end of June 2024, the solvency ratio of insurers after applying transitional measures stood at 217.3%, maintaining a stable level. However, with financial market uncertainties continuing to grow, supervisory authorities plan to strengthen oversight, focusing on vulnerable insurers to ensure they maintain adequate solvency ratios.

Korean Commercial Insurance Market Update

The Korea Insurance Development Institute publishes an annual statistical analysis report on commercial insurance based on its extensive statistical data. Commercial insurance is defined as a type of general property and casualty (P&C) insurance, excluding motor insurance and personal general P&C insurance, which covers risks arising in daily life for individuals or households. It is designed to provide coverage for businesses against risks that may arise in relation to their business operations and threaten their financial stability. Unlike personal lines of insurance, commercial insurance is corporate insurance that is structured and negotiated to meet the needs of specific corporations or industries. It provides much higher limits of coverage than personal insurance because the sum insured is typically much higher.

Examples of corporate insurance include fire insurance (covering general properties including factories), marine insurance, engineering insurance, comprehensive property insurance, and liability insurance. Commercial insurance risks are characterized by their large scale and unique characteristics, recognizing the distinct nature of each risk. This is reflected in measures such as allowing the application of non-statistical rates for commercial assets.

(Source: Korea Insurance Development Institute, Sep. 2024)

In 2023, the gross written premiums for commercial insurance totaled KRW 5.81 trillion²⁾, reflecting a 10% increase from the previous year. However, the number of new contracts decreased by 7.8% year on year, reaching 4.95 million. The decline in new contracts was attributed to the downturn in the shipping industry, which significantly impacted marine insurance—a substantial component of commercial insurance. On the other hand, the growth in written premiums was driven by the expansion of liability insurance and comprehensive insurance.

In 2023, the performance of new contracts and gross written premiums for commercial insurance varied across different categories. Fire insurance saw a 0.4% decline in the number of contracts and a 2.0% decrease in premiums. Marine insurance experienced a steep 17.7% drop in contracts, yet premiums rose by 9.4%. Engineering insurance faced declines in both policy counts and premiums, which fell by 2.2% and 0.4%, respectively, compared to the previous year. In contrast, liability insurance recorded a 6.4% increase in the number of policies and an 11.5% growth in premiums. Similarly, comprehensive insurance posted a 0.9% rise in contracts alongside a 12.3% increase in premiums.

Recently, the downturn in the shipping industry has led to a slowdown in marine insurance take-up, resulting in a decline in the number of contracts. However, the overall premium size has increased due to rising rates. In contrast, liability insurance and comprehensive insurance continue to show consistent growth in both the number of contracts and premiums. This trend reflects the growing industry interest in various liability insurance types, such as environmental liability insurance, driven by the increasing complexity of social structures.

In 2023, the distribution of new contracts and gross written premiums by type of commercial insurance showed the following proportions: fire insurance accounted for 7.2% of the total new contracts in terms of policy counts, marine insurance for 49.6%, engineering insurance for 0.4%, liability insurance for 36.5%, and comprehensive insurance for 6.3%. In terms of premiums, fire insurance represented 3.6%, marine insurance 16.4%, engineering insurance 7.6%, liability insurance 28.3%, and comprehensive insurance 44.1%. The proportion of fire insurance has been gradually decreasing as it is increasingly being replaced by packaged insurance products.

(Source: Korea Insurance Development Institute, Sep. 2024)

In 2023, an analysis of the general insurance market shows that 84.2% of new contracts were for personal lines of insurance, while 15.8% were for commercial insurance, indicating that the majority of contracts were personal lines. The proportion of contracts for commercial insurance saw a slight decline, attributed to a decrease in the number of marine insurance contracts, which traditionally account for a significant share of new contracts in the commercial insurance sector.

In terms of gross written premiums, personal insurance accounted for 54.1% and commercial insurance for 45.9%. While personal insurance continues to represent a larger share of premiums, the proportion of premiums from commercial insurance has been steadily increasing each year.

(Source: Korea Insurance Development Institute, Sep. 2024)

The loss ratio for commercial insurance in 2023 was a relatively stable 49.5%. Historically, the loss ratio for commercial insurance has typically remained within the 50% range. For instance, it recorded 53.2% in 2018 and 58.7% in 2019. However, due to an increase in large loss events, the loss ratio surged to 95.7% in 2020, followed by significant volatility with 60.1% in 2021 and 75.2% in 2022. By 2023, the loss ratio had recovered to its previous levels, settling at 49.5%.

Demographic Changes in Korea and the Insurance Industry

In 2023, South Korea registered 230,000 newborns, with a total fertility rate³⁾ of 0.72—the lowest in the world. This figure falls significantly short of the OECD average of 1.58 and represents just 55% of Japan's fertility rate of 1.3, despite Japan experiencing a more advanced stage of population aging.

The fluctuation in population growth, whether through increases or decreases, has significant implications for the insurance market. Therefore, it is essential to examine the number of marriages and newborns, both in the short and long term, as they significantly influence birth rates. This analysis explores the changes in insurance products resulting from demographic shifts observed in the aftermath of COVID-19. Furthermore, it discusses the development of insurance products designed to alleviate the financial burden on families during pregnancy and childbirth, as part of the insurance industry's broader efforts to address low birth rates.

In the early 1970s, the annual number of marriages ranged between 200,000 and 250,000. This figure steadily increased, peaking at around 400,000 marriages per year between 1980 and 1996. Following the financial crisis in 1997, the number of marriages began to decline, stabilizing at approximately 300,000 annually from 2000 to 2015. However, the trend turned downward again between 2016 and 2017, and during the COVID-19 pandemic in 2020–2021, the figure dropped to around 200,000. This lower level has continued into 2022 and 2023.

(Source: Korea Statistics Organization, 2024)

The marriage rate per 1,000 people exceeded 10% between 1980 and 1983 but gradually declined over time. By 2014, it stabilized at 6% before steadily decreasing again. During the COVID-19 pandemic, the rate fell to 4.2% in 2020 and dropped further to 3.8% in 2021, breaking below the 4% threshold. Currently, the rate has stabilized, remaining at 3.7% in 2022 and slightly increasing to 3.8% in 2023.

The total fertility rate remained above 2.0 until 1983 but decreased to 1.74 in 1984. It stayed above 1.0, reaching 1.05 in 2017, but dropped further to 0.98 in 2018. During the COVID-19 period, the total fertility rate was 0.84 in 2020 and 0.81 in 2021. Since then, it has continued to decline, reaching 0.78 in 2022 and 0.72 in 2023.

(Source: Korea Statistics Organization, 2024)

As the population composition evolves, Korea's demographic structure has undergone a rapid transformation. It has shifted from an amphora-like shape, where the population grows larger from older to younger age groups, to an inverted pyramid, characterized by a decline in population toward younger age groups. The median age in Korea increased from 31.8 years in 2000 to 43.7 years in 2020 and is expected to rise further to 54.4 years by 2040.

(Source: Korea Insurance Research Institute, Aug. 2021)

Korea's working-age population has been on a declining trend since 2018. This decrease poses a challenge to the country's economic potential by lowering its long-term growth rate. The stagnation in the real economy, in turn, fundamentally undermines the growth potential of the insurance industry, which has historically expanded at a pace comparable to economic growth. Over the past 20 years, the insurance industry's average growth rate stood at 6.3%, closely aligned with the nominal economic growth rate of 5.1%. The insurance penetration rate, measured by premiums as a percentage of GDP, has remained stagnant, increasing only slightly from 10.5% in 2000 to 11.5% in 2020. If the insurance industry continues to adhere to its current business model, the contraction of the economy will directly lead to a reduction in the industry's overall revenue.

(Source: Korea Insurance Research Institute, Aug. 2021)

The global decline in marriages and births during the COVID-19 pandemic was driven by stricter social distancing measures. While Korea is regarded as a country that handled the pandemic relatively well, the number of marriages and newborns has remained subdued in the aftermath of COVID-19.

However, increasing societal awareness of the declining birthrate, coupled with stronger government support for marriage and childbirth, has shown early signs of recovery since the first half of 2024. Although it is still too early to draw definitive conclusions, these trends indicate a potential turnaround.

An analysis of year-over-year growth rates of marriages and births shows intermittent increases in the number of marriages since the second half of 2022. Beginning in April 2024, both marriage and birth rates shifted to positive year-over-year growth for the first time in 12 years. If the upward trend in marriages continues, the number of births is also expected to gradually increase.

(Source: Korea Statistics Organization, 2024)

The quantitative demographic shift driven by accelerating aging, coupled with qualitative changes such as the emergence of the Millennials and Gen Z⁴⁾ and the growing income and wealth gap between generations, is expected to significantly impact the future of the insurance industry, including the bifurcation of the insurance market.

The older demographic, with its large population share but saturated market, limited familiarity with digital environments, and strong demand for health and retirement income, contrasts sharply with the younger demographic. In comparison, the younger demographic represents a smaller, less saturated market that excels in navigating new digital environments, creating two distinctly different market segments. As traditional business models become less effective in addressing the needs of either group, insurance companies must innovate by developing tailored products and sales strategies to cater to these contrasting demographics.

(Source: Korea Insurance Research Institute, Aug. 2021)

In the older demographic market, it is crucial to enhance preventive services, including health management, caregiving, and long-term care. Sales strategies should prioritize face-to-face interactions, which align with the preferences and familiarity of older individuals. In contrast, the younger demographic market requires simplified product offerings that intuitively explain traditional insurance products while addressing modern lifestyles and needs. A digital-first approach with non-face-to-face sales channels is expected to be more effective for this group. As aging intensifies, the insurance industry must take a proactive role in reducing generational burdens and fostering a society that supports an aging population. This can be achieved by expanding coverage and services related to mental health, including dementia, caregiving, and long-term care, with a focus on long-term sustainability.

To align with broader efforts to address the low birth rate, the insurance industry should consider developing insurance products aimed at reducing the financial burden on families related to pregnancy and childbirth.

A global comparison on insurance related to pregnancy and childbirth shows that private health insurance in advanced Western countries such as the United States, the United Kingdom, and Australia functions as a substitute for or supplement to public insurance, tailored to each country's specific circumstances. These policies provide limited coverage for pregnancy and childbirth, adhering strictly to market principles by restricting coverage scope based on premium levels or imposing waiting periods. In Asian countries such as Japan, China, and Hong Kong, private health insurance products cover medical situations that may arise during pregnancy and childbirth. They typically provide coverage for complications and illnesses related to pregnancy and childbirth but do not cover routine pregnancy and childbirth expenses.

In Korea, typical pregnancy and childbirth expenses are largely covered by the National Health Insurance and government programs. As a result, private health insurance generally does not provide coverage for routine pregnancy and childbirth-related costs. For private health insurance to include pregnancy and childbirth coverage, the policy must align with insurance principles and have market viability. Given Korea's circumstances, insurance products covering pregnancy- and childbirth-related illnesses appear to be the most suitable option. These illnesses qualify as unforeseen incidents, minimizing the risk of adverse selection, and in certain cases, they can lead to significant financial losses for the insured.

In Korea, insurance products covering pregnancy- and childbirth-related illnesses have been developed and are being sold, but they remain relatively unknown, highlighting the need for greater awareness. While these products typically have a coverage period of less than one year, which may deter interest from insurers focused on the long-term insurance market, there is potential to expand the market by developing products linked to fetal insurance.

Review of Natural Catastrophes in Korea

In 2024, South Korea experienced various natural disasters, including heavy rainfall, heat waves, and typhoons.

From June to August 2024, the nationwide average summer rainfall in South Korea was 602.7 mm, which was lower than the usual average of 727.3 mm. Typically, 50% of summer rainfall occurs during the monsoon season, but this year, 78.8% (474.8 mm) of the summer rainfall was concentrated in the monsoon period, marking the highest proportion since 1973. The total monsoon rainfall of 474.2 mm was 32.5% (118.1 mm), higher than the usual average of 356.7 mm. The 2024 monsoon season was characterized by intense rainfall concentrated in small areas, with hourly rainfall exceeding 100 mm in many instances.

Heavy rainfall also occurred during the autumn season. From September 19 to 21, the central and southern regions experienced an average of 300 mm of rain, with some areas exceeding 500 mm. This intense rainfall caused widespread damage, including flooded farmlands, collapsed river embankments, and crop infestations from pests and diseases.

In 2024, the nationwide average number of heat wave days (33°C or higher) reached 24.0 days, ranking as the third longest on record and 2.3 times the average of 10.6 days. Additionally, the number of tropical nights (25°C or higher) was 20.2 days, the longest on record, and 3.1 times the average of 6.5 days.

* Heat wave days: 1^st 2018 (31.0 days), 2^nd 1994 (28.5 days), 3^rd 2024 (24.0 days)
* Tropical night days: 1^st 2024 (20.2 days), 2^nd 2018 (16.5 days), 3^rd 1994 (16.5 days)

(Source: Korea Meteorological Administration, 2024)

From May 20 to September 19, 2024, the heat wave caused 34 deaths and affected 3,668 people with heat-related illnesses. This represents an increase of 2 deaths and 855 more cases of heat-related illnesses compared to 2023, where there were 32 deaths and 2,813 cases. The property damage caused by the heat wave (from June 11 to September 20) included the death of 1.56 million animals, including 109,000 pigs and 1.45 million poultry. Additionally, 468.82 million farmed fish were lost.

The significant damage caused by the heat wave is due to the expansion of the Tibetan High, which overlapped with the North Pacific High, maintaining the heat dome phenomenon. The sea surface temperature during the summer of 2024 reached a record high of 23.9°C, 1.1°C higher than the average of 22.8°C over the past decade.

(Source: Korea Meteorological Administration, 2024)

The typhoons that occurred in August, Typhoon Jongdari and Typhoon Shanshan, had notable impacts. Typhoon Jongdari, which moved northward along the west coast (with a minimum pressure of 998 hPa, a tropical storm on the SSHWS), caused 1 death and 1 injury, but the economic damage was minimal. Typhoon Shanshan, which passed through the Ryukyu Islands of Japan (with a minimum pressure of 935 hPa, a Category 4 storm on the SSHWS), had an indirect effect on the region, but there were no casualties, and economic damage was very limited.

* Figures in (  ) refer to the number of typhoons that impacted the Korean Peninsula (Source: Korea Meteorological Administration, 2024)

Korean Insurance Market Outlook for 2025

According to the "Outlook for Insurance Industry Growth" released by the Korea Insurance Research Institute in October 2024, the Korean insurance market is expected to grow by 2.4% in 2025, following a -6.0% growth in 2023 and a 4.7% growth in 2024. The life insurance market, which experienced a sharp decline in 2023, is projected to recover with a 5.0% growth in 2024. However, growth in this sector is expected to slow significantly in 2025, with only a 0.3% increase anticipated. The non-life insurance market has surpassed the life insurance sector in terms of premium volume since 2023, and its growth rate for 2025 is expected to be 4.3%, similar to the 4.5% growth rate in 2024. With a consistent growth rate exceeding 4%, non-life insurance is expected to continue leading the overall insurance market growth for the time being.

The reason for the expected decrease in the growth rate of the insurance industry in 2025 compared to the previous year is the anticipated 9.2% decrease in first-year premiums. Life insurance first-year premiums are expected to decrease by 10.0%, primarily due to reduced demand for short-term whole life insurance and lump-sum annuity insurance. Meanwhile, the growth rate for first-year premiums in long-term non-life insurance is expected to be 3.4%, driven mainly by accident and health insurance.

(Source: Korea Insurance Research Institute, Outlook for Insurance Industry Growth in 2025, Oct 10, 2024)

The total premiums for the insurance industry in 2025 are expected to reach KRW 254.7 trillion, a 2.4% increase compared to KRW 248.8 trillion in 2024. The total premiums for life insurance in 2025 are expected to be similar to 2024, increasing by KRW 0.3 trillion to KRW 118.3 trillion. On the other hand, the total premiums for non-life insurance in 2025 are expected to rise by KRW 5.5 trillion, reaching KRW 136.3 trillion, up from KRW 130.8 trillion in 2024.

(Source: Korea Insurance Research Institute, Outlook for Insurance Industry Growth in 2025, Oct 10, 2024)